May 14 2019
European high-yield turns sombre as volatility hits
Exuberant conditions in European high-yield have quickly come undone by wider market volatility that has weighed on recent issuance and poses a threat to a pipeline which consists mostly of price-sensitive issuers.
Some 18 out of 27 bonds issued since the start of April are trading below reoffer, according to Tradeweb data compiled by IFR, demonstrating how much sentiment has moved since trade tensions escalated between the US and China.
The iBoxx euro liquid high-yield index widened to 3.88% at Monday’s close, compared to this year’s low of 3.46% on April 23, according to Refinitiv Eikon data.
“It’s simply a reaction to some bullish trends among issuers, who have been opportunistically raising cash in the bond market at a time when the market was ignoring key risks surrounding the US-China trade war,” Benjamin Sabahi, head of credit research at Spread Research, told IFR.
Among the new issues, EG Group and Consus Real Estate are among the worst hit.
The petrol station operator’s senior secured €300m 3.625% Feb 2024 note is down to 97.8, while the German property developer’s senior secured €400m 9.625% May 2024 note is down to 95.6, after pricing with a discount at 98.5.
Spread Research’s Sabahi said the lack of fresh paper, strong redemptions and substantial coupon payments, together with inflows, had led to a favourable market for issuers, seeing bonds for companies with poor fundamentals trade up.
“When the market corrects, bonds without any premium like the new Eircom or FNAC Darty ones in so-called defensive sectors, or bonds of cyclical sectors in the secondary market for which investors just face the reality of weak Q1 results trade down,” he said.
MATERIAL IMPACT
These widening yields could have a material impact on volumes, according to a senior banker. Issuers are already struggling, with the majority of last week’s offerings failing to price at the tight end of talk.
“More than half of the calendar is highly sensitive price sensitive, so there isn’t much room for price movement,” he said.
While M&A financings saw a pick-up in recent weeks, issuance this year has been dominated by Double B refinancings and is likely to continue to do so as the upcoming M&A financing pipeline remains constrained.
This means the level of issuance will be highly dependent on attractive pricing levels that allow companies to break even when paying to redeem bonds early.
This reliance on Double B issuers has been highly unusual, at 70%, compared to the highest share of 58% in 2017 according to Spread Research data that goes back to 2013.
So far this week, there has only been a tap for Verisure priced on Monday [L5N22P4Y4], with no further deal announcements made on Tuesday.
This comes in stark contrast with the last three weeks, which saw at least four deals price, according to IFR data.
A second banker said some issuers that were looking at this week have lost their sense of urgency as pricing points have become less attractive.
He expects upcoming deals to be met with more scrutiny from investors.
“The credit will be really important, whereas for the last couple of weeks, we felt like anything could go.
There will still be a market for [risky deals] as there has been little yield on offer,” the banker said.
In terms of issuance picking up, “it requires a bit more clarity to see whether we’re going up and down from here, or sideways for a while,” the first banker said.
“If investors are willing to put their best foot forward to buy primary, deals will come. If they’re saying, I’ll buy but only if you make it cheap enough where I have to, deals won’t come.”
High-yield funds still saw inflows last week, according to data from JP Morgan and Spread Research, but this may not last.
Sabahi expects to see outflows catch up with the market widening, he said.

Distressed-Debt Funds Face Losses on Nyrstar Restructuring Bet
2019-05-10 08:41:28.975 GMT
By Luca Casiraghi and Antonio Vanuzzo
(Bloomberg) -- Distressed-debt funds are facing losses after a failed effort to take control of metal producer Nyrstar NV.
Holders of 955 million euros ($1.1 billion) of bonds may recover about 50% of face value in a debt restructuring that transfers the company to commodity trader
Trafigura Group, according to investors, who asked not to be identified because the terms are private.
More than 90% of bond investors agreed to the deal to avoid insolvency, paving the way for a court-led process in the U.K.
Avenue Capital Management, Monarch Alternative Capital and Warwick Capital Partners are among funds that bought the notes last year, hoping to take control and profit from a debt-for- equity swap, people familiar with the matter said.
The plan backfired because they underestimated how urgently Nyrstar needed money and how quickly its largest shareholder would stump up the cash in its own bid for control.
“Buying Nyrstar notes to take control of the company was a bit of wishful thinking as Trafigura has skin in the game,” said Felix Fischer, global head of research at Lucror Analytics in Singapore.
Wishful Thinking
Officials for Trafigura and Nyrstar declined to comment on the deal. A spokesman for Avenue, which sold its position before the restructuring agreement, also declined to comment.
Officials at Monarch and Warwick didn’t return calls and emails seeking comment.
Alchemy Partners is also among funds that purchased bonds, people familiar with the matter said last month, though it’s unclear when they were involved.
A spokesman for Alchemy wasn’t immediately available to comment. Most distressed funds bought Nyrstar’s bonds between September and early November, during which time the price fell from about 90 cents on the euro to about 50 cents, according to people familiar with the trades.
The funds were still trying to get organized when the zinc giant announced it got $650 million of new money from Trafigura, they said.
The commodity trader is at once Nyrstar’s largest shareholder, supplier, customer and senior-secured finance provider.
It will hold a 98% stake in Nyrstar after the restructuring.
“In the restructuring process Trafigura held all the cards,” said Marc Pierron, a senior credit analyst at Spread Research in Lyon, France.
Still, the recovery for distressed-debt investors could have been lower and funds that bought at the bottom may double their investments.
Trafigura initially proposed a write-off of more than 80%, and Nyrstar’s bonds dropped as low as 25 cents on the euro in February, according to data compiled by Bloomberg.
Bondholders pushed back, leading to the current package now worth about 50% of the original face value, with possible extra gains tied to the price of zinc, according to investors, who asked not to be named.
On April 29, Nyrstar announced that a majority of creditors signed up for the deal.
*T
================================================================
Bondholder Package
================================================================
Nyrstar’s bondholders will receive a package with a face value of 568 million euros, including:262.5 million euros of Trafigura perpetual bonds80.
6 million euros of Trafigura senior notes225 million euros of instruments linked to zinc pricesIn exchange, they’ll cancel 955 million euros of existing debtDeal accepted by holders of about 90 percent of Nyrstar bonds maturing in 2019, 2022 and 2024.
*T
The worst losses may be faced by some of Nyrstar’s bank lenders, with Deutsche Bank AG in line to write down as much as70% of face value.
Insurance and syndication of its loan will mitigate some of the bank’s losses.
“For bondholders it was likely difficult to have a say given Trafigura was putting its hands on the company’s assets in exchange of financing Nyrstar’s working capital needs,” Pierron said. “The final deal is relatively decent for the bondholders.”
--With assistance from Jack Farchy and Andy Hoffman.
To contact the reporters on this story:
Luca Casiraghi in London at lcasiraghi@bloomberg.net;
Antonio Vanuzzo in London at avanuzzo@bloomberg.net
To contact the editors responsible for this story:
Vivianne Rodrigues at vrodrigues3@bloomberg.net
Abigail Moses

Companies in Big Refinance Push While Credit Rally Has Legs
2019-04-29
By Marianna Aragao and Tasos Vossos
(Bloomberg) -- Fearing a repeat of the 2018 selloff in European credit markets, some companies are opting to swallow relatively higher repayment
costs now in order to secure longer term savings.
French retailer Fnac Darty SA will pay 18.7 million euros ($20.8 million) to redeem a bond instead of waiting until September, when a scheduled call price would
have been cheaper.
Elsewhere, investment firm Wendel SA is utilizing a make-whole provision to retire notes maturing in 2020 and 2021 ahead of schedule.
“The companies are saying who knows how the market is going to be in the second half. Let’s do it now at a low funding cost and be on the safe side,” said Thomas Neuhold, a Vienna-based
money manager at Gutmann Kapitalanlage AG, which oversees about 9 billion euros of assets.
“They are probably doing the right thing. No matter who is coming, the market is willing to buy at any price at the moment.”
A lack of yield elsewhere and central bankers from Frankfurt to Stockholm turning more dovish this month have continued to boost the appeal of corporate bonds.
Euro investment-grade corporate bond yields have tumbled to 0.73 percent, their lowest in 15 months, while those on speculative- grade debt declined to 3.6 percent,
near the lowest since June, according to Bloomberg Barclays indexes.
These lows haven’t gone unnoticed. “We decided to do these liability management transactions in the context of a low borrowing cost environment,
” Wendel spokeswoman Caroline Decauxsaid via email.
The firm will announce the bonds’ redemption price on May 17.
Confidence Game
Last week Fnac sold two tranches of euro notes to refinance a bond maturing in 2023 rather than waiting for a scheduled call date on Sept.
30 -- under that scenario the company would have paid a redemption price of 101.
625 percent, less than the current bid price of 102.522, according to data compiled by Bloomberg.
This decision was based on the retailer’s confidence that current market conditions would allow it to reduce coupons significantly to compensate for
the additional premium, according to a person familiar with the transaction.
The new euro notes due in five years priced at 1.865 percent while the bond maturing in seven years came at 2.65 percent.
The coupon on its existing 2023 is 3.25 percent.
Other high-yield issuers including Rexel SA and Loxam SAS adopted a similar strategy this year, redeeming notes a few months before a step down in call price.
Such an approach has seen high-yield borrowers in Europe pay 24 million euros in extra costs so far in 2019, according to estimates by Spread Research, a credit research firm.
The rally in yields has also triggered some unorthodox approaches from financial services borrowers.
When Coventry Building Society decided to replace an old contingent convertible bond earlier this month, instead of waiting to do it around the scheduled call date in November, it launched a
buyback.
The U.K. lender accepted to pay 102.25 percent of face value for the notes that investors sold back.
This year’s additional repayments costs “reflect how careful issuers have been regarding potential spread widening in the second half of the year if the market corrects,” according
to Benjamin Sabahi, head of credit research at Spread Research.
“It’s not surprising to see companies acting opportunistically given the market rally this year and how hungry for paper investors are,” he said.

HEMA recovers but analysts remain cautious - IFR News
11-Apr-2019 17:01:35
LONDON, April 11 (IFR) - Dutch retailer HEMA's bonds, which had plummeted on Wednesday, recovered after management gave a positive impression on its results.
Be that as it may, analysts remain cautious given the weakness of the numbers released.
"The conference call was constructive, and management announced a strategic shift, driven by Ramphastos, which we find to be promising as it could unlock growth
potential for HEMA," Spread Research analyst Anthony Giret said in a client note.
"Reducing debt and deleveraging also seems to be a key strategic priority, but this is mainly conditional upon improving operating performance, in our view."
The results released on Wednesday morning, prior to the afternoon call, showed Q4 adjusted Ebitda fall to €38.5m, an 8% slump on the previous year thanks to a
drop in Dutch and French sales. Full-year Ebitda fell to €117m, a 12% fall.
The Dutch retailer's €150m 8.50% senior unsecured 2023 note bore the brunt. Having gained 10 points since the start of the month, it plunged eight to a 70 bid.
It is now bid around 75, according to Tradeweb.
One investor said the bonds may have traded up prior to the results due to short-covering, with big moves being reasonable given the paper's relative illiquidity.
He said he would be more concerned had the bonds traded up further following the results release.
Management confirmed a €35.8m equity injection from the new sponsor Ramphastos, although this was slightly short of the €40m announced at the time of the
acquisition in October [see related content].
HEMA also said it had decided to sell its bakeries network as part of its debt reduction plans.
While analysts took note of the heightened yields offered by HEMA's bonds, with the 2023s now around 18.5%,
they think they are insufficient given the short-term risks involved.
Spread Research’s Giret said it would be challenging for the business to delever to less than 6x, creating significant refinancing risk.
Net leverage for 2018 was 6.6x, up from 5.5x the previous year thanks to heavy working capital outflows, despite a €36m equity injection in November.
Given the reduced revolving credit facility headroom, after HEMA's RCF was cut by €20m to €80m, "available liquidity is at the forefront of our minds",
CreditSights analysts said, although they are somewhat comforted by a €10m unsecured working capital backstop facility Ramphastos is providing.
"Whilst the prospective sale of the bakery and commitment of the sponsor to pay down debt are steps in the right direction, we have seen HEMA's inventory
overhang wreak havoc on its bond prices before," the analysts said.
As announced at the time of the takeover, Ramphastos is acquiring most of a senior PIK note issued by an affiliate of Lion Capital, the previous owner,
and it will be turned into equity before Easter.
It was HEMA's first conference call under its new ownership, having skipped the call for its third-quarter results.
Still, despite Wednesday's fall, HEMA's 2023 bond is still up from around 67 bid at the start of the year. It was issued at par in July 2017,
together with a €600m senior secured 2022 FRN.
The results came at a tricky time for retail issuers in the European high-yield market, with Debenhams falling into administration earlier this week.

(Refinitiv) Cyclicals pounce on market bounce - IFR News (April 2019)

Cyclicals pounce on market bounce - IFR News
08-Apr-2019 16:52:22
LONDON, April 8 (IFR) - Ineos and Italmatch are making fast work of taking advantage of a bounce in investor appetite for cyclical credits, both bringing
transactions tapping into the strong gains seen in their debt since the start of the year.
The two issuers' outstanding bonds hit all-time lows last year as concerns around the end of easy central bank liquidity gripped the market.
However, the tone has since completely reversed, leading investors to search for yield in all corners of the credit market once again.
Swiss chemicals company Ineos took full advantage of this, pricing a €770m 7NC3 senior secured note (Ba1/BB+/BBB-) at 2.875%, from 3.25% area IPTs and 3% area talk.
Analysts saw the deal paying practically no new issue premium below 3%. Pricing compares to its €550m 2.125% Nov 2025 which was bid around 2.60%
pre-announcement, according to Tradeweb. The bond was bid at 3.80% at the start of December.
CreditSights analysts said the pricing does not offer enough compensation given the potential downside, citing worries including economic slowdown,
particularly in China, and oil price uncertainty.
Q4 Ebitda was down 37% to €356m compared to a year earlier, due to inventory holding losses that resulted from the decline in crude oil and product prices.
Full-year Ebitda fell to €2.3bn, compared to €2.5bn in 2017.
Despite the downturn and heightened capital expenditures, the company paid a €1.45bn dividend in February.
Benjamin Sabahi, head of credit research at Spread Research, said in a note that yields in the Single B sector, which includes a lot of cyclical issuers,
do not account for lower growth that will potentially hit cyclical high-yield issuers by year-end.
An investor said that, while she liked Ineos despite the poor results based on its free casfhlow generation, pricing had gone too tight.
"It's a long-duration low-coupon bond, so it's the kind of thing that will implode when the market moves," she said.
"It seems like people are excited for no reason at the moment. Both what happened in December and the rally now are overreactions.
The market is so nervous that it goes from one extreme to an extreme."
The deal, via global coordinators Barclays and JP Morgan, was an opportunistic refinancing of the company's €770m 4% May 2023 note, on
which the redemption price steps down to 101 from 102 on May 1.

NEXT DOSE
Italmatch will be next to test appetite, having started a roadshow for a €200m tap of its outstanding €410m Sep 2024 note (B3/B),
which had priced at 475bp over Euribor.
Proceeds refinance a bridge loan that was taken out to finance its acquisition of BWA Water Additives.
In addition to the financing, Bain and Italmatch's management are making an equity contribution of €90m.
IPTs are 99.00 area. The original tranche was bid at 99.40 pre-announcement at Monday's open but subsequently traded down slightly to 99.10,
according to Tradeweb data.
If the deal prices above 98.75, it will be fungible with the original tranche, leads said in the mandate announcement.
The outstanding tranche has rallied strongly since the start of the year, when it was bid at 94.
The Italian company's deal has been expected since the original transaction financing Italmatch's buyout by Bain in September,
when the issuer said it would make a significant acquisition and part-finance it with debt.
The prospect of further debt had concerned investors at the time and the company had ended up cutting the amount of additional
senior secured debt that could be raised on top of the initial deal.
The acquisition brings leverage up to 5.3x, the maximum limit allowed after changes to the last deal's documentation.
Italmatch's roadshow ends on Wednesday via joint global coordinators BNP Paribas, Goldman Sachs and Citigroup.

By Marianna Aragao
(Bloomberg) -- A raft of bond repayments is looming over
Europe’s high-yield market, shrinking further the amount of
investable debt amid lackluster new issuance volumes.
Nexi Capital SpA, Worldpay Finance Plc and Perstorp Holding
AB are among speculative-grade borrowers planning to repay
outstanding bonds, which may hand back as much as 3.9 billion
euros ($4.4 billion) of cash to investors, according to
estimates by credit research firm Spread Research.
“The combination of repayments, inflows and very low supply
means more cash in the hands of investors, which in the short-
term could help spreads tighten further if they turn to the
secondary market to reinvest,” said Daniel Lamy, a credit
strategist at JPMorgan Chase Bank NA in London. “This cash also
provides a buffer against market volatility, avoiding forced
selling like we saw late last year.”

Those narrowing spreads could spur opportunistic bond sales
in Europe as price power swings back in favor of issuers. Last
month saw Cemex SAB de CV, Faurecia SE and Sappi Papier Holding
GmbH print new deals inside initial price thoughts on the back
of strong demand. And a 700 million euro bond backing the buyout
of Johnson Controls International Plc’s battery unit was also
oversubscribed, despite concerns around loose terms.
Supply, Demand

High-yield bond sales totaled 10.2 billion euros in the
first three months of 2019, down 45 percent on the same period
of last year, according to data compiled by Bloomberg.
High-Yield Bankers Fear Another Slow Quarter for Sales in
Europe
“Bond buyers have less and less supply from which to choose
as borrowers predominantly turn to the loan market for fresh
paper such as recap or M&As, and I don’t see that trend changing
any time soon,” said Benjamin Sabahi, head of credit research at
Spread Research.
While supply dwindled, inflows have seen a resurgence. For
the second time in March, high-yield funds saw a weekly inflow
of over 500 million euros in the week ended March 20, bringing
the year-to-date inflow to 2.7 billion euros, according to a
March 22 research note from JPMorgan. This compares to outflows
of 5.4 billion euros in the first quarter of 2018.
These inflows “will continue to provide a strong technical
bid for bonds since the primary market is so depressed right
now,” Sabahi said.
But the lack of issuance coupled with redemptions also adds
to concerns about the high-yield market shrinking in Europe.
This comes after years of cannibalization from leveraged loans,
which have typically been the preferred route for sponsors in
leveraged buyouts and are increasingly attracting high-yield
borrowers looking to refinance their debt.
Perstorp is the latest issuer to opt out of bonds by
selling dollar- and euro-denominated term loans to refinance its
existing notes. Another example is Nexi, which is set to repay
outstanding debt and raise a new loan as part of its IPO plan.
The par value of bonds outstanding in the ICE BofAML Euro
High Yield Index peaked in 2015 at 317.0 billion euros and has
since drifted lower to 275.5 billion euros, data from March 28
shows.
Without new issuers coming to the market, “the market will
shrink a little further until the end of this cycle,” according
to JPMorgan’s Lamy. The trend may only reverse if a major
economic downturn prompts credit-rating cuts, pushing issuers
from investment grade into high yield, he said.

To contact the reporter on this story:
Marianna Aragao in London at mduartedeara@bloomberg.net
To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
Charles Daly

By Antonio Vanuzzo and Laura Benitez
(Bloomberg) -- Davidson Kempner Capital Management has built a stake in the bonds of troubled wind-turbine maker
Senvion, following similar moves by rival Anchorage Capital Group, according to people familiar with the matter.
The investor has bought up some of Senvion’s 400 million
euros ($452 million) of notes maturing in October 2022, the same
debt targeted by Anchorage Capital Group, the people said,
asking not to be named because the information isn’t public.
Officials at Davidson Kempner and Senvion declined to
comment.
Senvion is preparing for negotiations with its creditors on
restructuring its debt amid mounting financial pressure
following project delays, cost overruns and profit warnings. On
Wednesday, the Centerbridge-owned manufacturer said it had
appointed turnaround specialist Neil Robson as chief
restructuring officer. Robson recently helped steer a 1 billion-
euro debt restructuring of German metal recycling company Scholz
Holding AG.
Hedge funds buying up bonds at distressed levels could
profit in a restructuring if new money is found to refinance
debt facilities and prevent an insolvency, potentially spurring
a recovery in the notes. They could also end up owning the firm
if the rescue hands control to creditors in a debt-for-equity
swap.
The 2022 notes are currently quoted at around 40 cents on
the euro, according to data compiled by Bloomberg.
“It’s not surprising to see hedge funds buying into the
debt,” said Remi Ramadou, a credit analyst at Spread Research
who covers Senvion notes. “The most probable scenario is a debt
restructuring with a debt for equity swap.”
Senvion’s debt also includes a 825 million euros guaranteed
loan. A 50 million block of the facility traded earlier this
week at around 70 cents on the euro, according to the people.
Read More: Anchorage Is Said to Build Position in Battered
Senvion Bonds

--With assistance from Luca Casiraghi.

To contact the reporters on this story:
Antonio Vanuzzo in London at avanuzzo@bloomberg.net;
Laura Benitez in London at lbenitez1@bloomberg.net
To contact the editors responsible for this story:
Vivianne Rodrigues at vrodrigues3@bloomberg.net
Chris Vellacott

(BN) Salini Is Said to Face Pressure to Rescue Construction Industry (March 2019)

Salini Is Said to Face Pressure to Rescue Construction Industry
2019-03-13 17:43:08.852 GMT

By Antonio Vanuzzo and Luca Casiraghi
(Bloomberg) -- Salini Impregilo SpA, Italy’s largest
construction company, is being pressured to help bail out the
wider industry as a condition for financing its proposed
investment in Astaldi SpA, according to four people familiar
with the matter.
State-owned lender Cassa Depositi e Prestiti SpA will help
Salini take a 65 percent stake in its biggest competitor if it
uses the funds to invest in smaller rivals, the people said,
asking not to be named because the negotiations are private.
Some of Astaldi’s bank lenders may also only be willing to
increase their exposure for a sector-wide solution, the people
said.
Salini offered in February to save Astaldi from insolvency
with a 225 million-euro ($254 million) capital increase, but may
have less than 150 million euros available for the transaction,
the people said. The Milan-based firm is the sole bidder and the
only Italian builder capable of consolidating the sector, which
has been struggling for years amid tight government spending and
soured foreign projects.
“Cherry picking Astaldi’s specific projects instead of
taking over the company would have been better,” said Marc
Pierron, a senior credit analyst at Spread Research in Lyon,
France. “Integrating the whole Astaldi presents a higher
execution risk and financial needs. That’s why Salini’s offer is
conditional to the banks providing new bonding lines and the
presence of a co-investor.”

Broader Stabilization

A spokesman for Cassa Depositi pointed to comments made by
its Chief Executive Officer Fabrizio Palermo on Feb. 27, saying
that any possible intervention in Astaldi would aim at a broader
stabilization of the sector. The spokesman declined to comment
further.
Officials at Salini and Astaldi also declined to comment on
the matter.
Salini has to file a detailed restructuring proposal to a
court in Rome by the end of March and a majority of Astaldi’s 40
bank lenders must back the plan for it to be approved, the
people said. No plan has yet been submitted, they said.
Astaldi had 1.3 billion euros of net debt and 3.3 billion
euros of guarantees in 2017, according to the last publicly
available full-year earnings.
The company’s board has approved the proposal, which
includes repaying preferential and pre-deductible creditors,
converting unsecured creditors into shareholders and selling
assets.
Salini also aims to create a new group to invest in
Astaldi. That would allow Cassa Depositi to skirt rules that
prevent it from rescuing distressed firms and allow it to bid
for assets of other troubled builders, they said.
Astaldi filed for creditor protection after a re-
capitalization plan failed last year. Hurt by a slump in Italy’s
construction sector, Condotte SpA and CMC di Ravenna SpA, the
nation’s third and fourth largest builders, also started court
proceedings.
“Over the last few earnings calls, Salini made clear its
goal was to reach an investment-grade rating, but in order to
achieve it the company needs to deleverage significantly,”
Pierron said. “Salini’s potential bid for the whole construction
activity of Astaldi goes in the opposite direction.”
Read more: Italian Builders Add $118 Billion Worry to
Banks’ Problems (1)

--With assistance from Chiara Albanese.

To contact the reporters on this story:
Antonio Vanuzzo in London at avanuzzo@bloomberg.net;
Luca Casiraghi in London at lcasiraghi@bloomberg.net
To contact the editors responsible for this story:
Vivianne Rodrigues at vrodrigues3@bloomberg.net

(BN) Distressed Debt Gurus Get a 90 Percent Scorching (March 2019)

By Chris Bryant
(Bloomberg Opinion) -- When a company’s bonds trade near 30
cents on the euro, that would usually be the moment for
distressed debt specialist Centerbridge Partners to show up and
put the heat on the owners. The private equity firm holds some
of bankrupt U.S. utility PG&E Corp.’s notes, for example.
But Centerbridge has found itself on the other side of the
table in the case of the struggling wind turbine manufacturer
Senvion SA. It is the owner of the listed German company.
A succession of profit warnings and worries about Senvion’s
financial stability have wiped out more than 90 percent of the
value of the Centerbridge funds’ majority equity stake.
Meanwhile, the manufacturer’s 400 million euros ($452 million)
of 3.875 percent coupon bonds, due in 2022, yield a staggering
40 percent.
Talks with the lending banks and bondholders now loom large
and Centerbridge may have to sink more money into the company.
It shouldn’t dally too long.
Centerbridge bought Senvion from India’s Suzlon Energy Ltd.
in 2015 for about 1 billion euros, when the seller was trying to
cut its large debt load. Together with co-investor Arpwood
Partners, the private equity firm sold about one-quarter of the
shares to investors the following year, allowing Centerbridge to
recoup some of its original equity outlay. Since then, Senvion’s
problems have piled up.
Competition has intensified in the wind farm industry and
contract auctions have put downward pressure on pricing. Senvion
has already closed several factories and cut hundreds of jobs.
Last year the company compounded its troubles by failing to
deliver projects on time, triggering penalty payments and a big
jump in working capital. It’s had bad luck too. The discovery of
a live bomb from World War II held up installation at one of its
sites. The chief executive and finance director have been
replaced.
In February, Senvion said it had commissioned a
restructuring opinion and would delay the publication of its
full-year earnings. It had almost 150 million euros of cash at
the end of September, but a 125 million-euro revolving credit
line has since been drawn, which suggests liquidity became
tight. Net debt is at least 5.5 times 2018 Ebitda, estimates
Remi Ramadou of Spread Research.
The company and its lenders have hired financial advisers
and lawyers, Bloomberg News has reported, cementing the
impression that a capital restructuring lies ahead. In view of
Centerbridge’s debt expertise and the likelihood that hedge
funds now hold quite a lot of the distressed bonds, the
restructuring talks should be lively.
Senvion needs financial relief but it’s not clear who’s
going to provide it and on what terms – hence the sorry state of
the bonds. It raised 62.5 million euros in fresh capital from
Centerbridge and others last year but it has burned through much
of that.
The liquidity pressures should ease once delayed orders are
completed, inventory decreases and customer payments are
received. However, Senvion is smaller than market leaders such
as Vestas Wind Systems A/S, General Electric Co. and Siemens
Gamesa Renewable Energy SA, which might make it difficult to
achieve the economies of scale needed to stay competitive. While
it has won orders in places like India and Chile, its sales are
too skewed toward stagnating European markets.
Centerbridge has publicly backed the new management’s
turnaround plan, but hasn’t yet matched that rhetoric with more
funds. Writing a check would avert the risk that Senvion’s
customers use the restructuring as a pretext to try to recoup
project prepayments from its banks. The company has a 825
million euro letter of guarantee facility, which might allow
just that. And more than half of it has been pledged, according
to Jefferies analyst Stephen Lienert.
The fact that Centerbridge hasn’t yet stumped up the extra
cash might indicate that it wants more breathing space from the
banks and for bondholders to take a haircut, perhaps in return
for equity. It’s also possible that a white knight will emerge –
the wind-turbine servicing contracts might be attractive – but
any bidder may wait to see if Senvion fails first.
Another option is for Centerbridge to buy some of the
company’s debt itself, an approach that investment firm Brait SE
took during the restructuring of British retailer New Look.
Those involved shouldn’t hang around. Senvion depends on cash
advances from customers when they place orders. The longer its
bonds look distressed, the bigger the chance that clients will
shop elsewhere.
Wind turbines are rightly beloved by those still hoping we
can avoid the cataclysm of an over-heating planet. In this case,
though, it’s private equity that’s been scorched.

To contact the author of this story:
Chris Bryant at cbryant32@bloomberg.net
To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net
Centerbridge was forced to scale back its ambitions. The owners
originally hoped to raise as much as 700 million euros but the
share sale brought in just 294 million euros.
The guarantees are senior to Senvion’s high-yield bond. It’s
probable, though, that any customers who did ask for their money
back would be hit with a break-fee, which might deter some of
them.

By Marianna Aragao
(Bloomberg) -- Acquisition by Sunrise of UPC’s Swiss
operations (including its existing notes) won’t trigger a change
of control of the bonds, according to a company statement.
* As part of the transaction, Sunrise will acquire a portion of
the target group’s outstanding debt totaling ~CHF3.6b: statement
* This includes UPC’s existing senior and senior secured notes
issued by UPC Holding, UPCB Finance IV Ltd and UPCB Finance VII
Ltd
* Sunrise will undertake a rights issue to raise ~CHF4.1b to
fund the residual cash payment of ~CHF2.7b
** Proceeds from the issue will also repay ~CHF1.1b of certain
existing Sunrise debt, resulting in net leverage of ~3.0x
* Transaction is "credit positive" as new combined entity will
be a stronger player than UPC or Sunrise on a standalone basis,
able to better compete with incumbent Swisscom, Jean-Rene
Meduri, an analyst at Spread Research says
* New combined entity leverage of 2.7x (post expected synergies)
is "well below" current net leverage at the UPC Holding’s level
of 4.0x, Meduri says
* NOTE: Earlier, Liberty Global Sells Swiss Unit to Sunrise for
$6.3 Billion

To contact the reporter on this story:
Marianna Aragao in London at mduartedeara@bloomberg.net
To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
Charles Daly

By Laura Benitez
(Bloomberg) -- Wind turbine group Senvion SA said it will not breach covenants on its debt, after a profit warning on Wednesday prompted a slump in the company’s bonds.
The company "expects to comply with its covenants," a Senvion spokesman said by email on Thursday, declining to discuss details of conditions on its debt facilities, because the information isn’t public.
Senvion said its expectations about meeting its covenant test is based on preliminary results and available data as of December.
The company revised down sales and earnings guidance on Wednesday, its second profit warning in four months, citing project delays and cost overruns. Moody’s Investors Service cut its outlook on the company’s debt to negative from stable in November, attributing its decision to weak orders amid tough competition.
Senvion’s 400 million euros ($453 million) of bonds maturing in October 2022 are quoted at about 36 cents on the euro, compared with almost 90 cents in October, before the earlier profit warning on Nov. 1, according to data compiled by Bloomberg.
Read More: Senvion Warning is ‘Deja Vu,’ Estimates May Be
Halved: Citi
The company’s struggles make an eventual debt restructuring more likely and may put pressure on its access to liquidity, according to Remi Ramadou, a credit analyst at Spread Research.
Senvion’s spokesman refuted Ramadou’s view and said the company has sufficient access to cash.
"Senvion has sufficient liquidity," the spokesman said.
"All banking lines are available to draw on, if and when Senvion requires them."
The company has access to 125 million euros of a revolving credit facility that remained undrawn and most of 825 million euros in guarantee facilities, according to the company.
Senvion, whose main shareholder is Centerbridge Partners, will report its full annual results on March 14.

To contact the reporter on this story:
Laura Benitez in London at lbenitez1@bloomberg.net To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
Chris Vellacott, Abigail Moses

European high-yield ETFs saw huge inflows last week, demonstrating the continued appeal of passive investing.
Inflows hit €374m, the third largest amount in four years, according to Spread Research, helping to sustain the rally seen so far this year after a detrimental 2018.
This brings year-to-date inflows to €555m - more than the €539m that entered funds for the whole of last year.
The inflows bolstered the iBoxx euro liquid high-yield index, which has rallied to 4.48% from its early-January peak of 5.11%. The index has delivered a 2.6% total return so far.
“The money we saw come into the ETF market last week looks like momentum money,” said Michael John Lytle, chief executive officer at Tabula Investment Management, which launched a CDS-based European high-yield ETF in January.
Like other risk asset classes, European high-yield has been boosted by a risk-on rebound after the Federal Reserve softened its bias toward raising rates.
“If you have a cash position and you want to be exposed immediately to the performance of the high-yield market, these passive products are a great way of doing that without taking a view of any particular manager or approach,” Lytle said.
“Also, if your signals change and you want to take some risk off the table, it’s much easier to get out and adjust your position.”
This year the benefits of inflows have accrued to ETFs and short-term high-yield funds, while long-term high-yield funds have seen outflows.
This suggests defensiveness, according to Benjamin Sabahi, Spread Research’s head of credit research.
“It was a clever strategy at the end of last year - with negative noise - to get invested in ETFs and account for macro risk,” he told IFR.
“There is so much cautiousness in the market with this rally and the likelihood that we’re going to have additional profit warnings as in Q3 and Q4; that’s the reason investors have been seeking ETFs in order to not be exposed to idiosyncratic risks.”
The primary market has echoed the caution, with only one new issue this year - for crossover credit Telecom Italia. The rest of the supply has come from increases and mirror notes on bonds that were trading too low to be tapped.

UNCERTAINTY AHEAD
Some active managers hoped last year’s battering, driven by huge price drops on idiosyncratic stories, would make the case for active managers against passive funds.
For Tabula’s Lytle, the appeal of ETFs is not necessarily a reflection of the underperformance of active managers. “Good active managers are always going to be worth investing in, as long as they produce alpha.”
“The amount of money in the passive bucket is growing, as a reflection of how businesses are developing. Across the fixed income asset class, people need good, passive allocation tools, independent of how active managers have performed.”
Given how much the market has moved despite looming uncertainties in the backdrop, it is not clear how far the rally will extend.
“Markets are being very optimistic given corporate earnings, questions regarding China, and the deterioration of official data,” said Spread Research’s Sabahi.
“I’m not expecting inflows to continue. Investors will question and balance the yield offered versus what we have in the macro backdrop. Today, we’re not paid for that.”
ETFs are likely to remain in focus as uncertainty prevails regarding the global economy and central bank policy, given their liquidity compared with high-yield bonds.
High-yield bonds were troubled by even worse liquidity than usual late last year, when investors tried to preserve whatever returns they made as the market plummeted.
In this environment of volatility, Lytle expects fund flows to be driven by risk appetite throughout the year. However, he notes that, so far, ETF investors seem to be adding to their credit risk allocation, most likely in recognition of a positive credit risk premium.

By Luca Casiraghi, Laura Benitez and Francois de Beaupuy
(Bloomberg) -- Some Vallourec SA creditors are trying to cut exposure to the French steel tube maker amid concerns it will struggle to adhere to its debt commitments, according to people familiar with the discussions.

At least two of the firm’s lenders are looking to sell their pledges to Vallourec’s revolving-credit facilities at about 75 percent of face value, the people said, asking not to be identified because the talks are private. Potential buyers have been approached in London, they said. The company had 2.2 billion euros ($2.5 billion) of undrawn credit facilities at the end of September. Its bonds and shares fell on Thursday.

Vallourec has suffered as crude and power producers deferred or canceled projects amid successive oil routs and competition from renewable energies. Outstanding commercial paper, a type of short-term debt that’s highly sensitive to investor confidence, fell to a three-year low of 161 million euros in December from a peak of 598 million euros in September 2017, according to data from the Banque de France.

A Vallourec spokesman declined to comment on market transactions. The company manages its commercial paper program according to its needs, he added, pointing to a Nov. 26 statement that described the company’s liquidity situation as “sound,” citing the undrawn facilities and 769 million euros of cash.

The company’s 550 million euros of bonds due in October 2022 fell 0.3 cents on the euro on Thursday to a record low of 67.6 cents, according to data compiled by Bloomberg. Shares dropped as much as 4.3 percent to the lowest since Jan. 3.

The bonds extended declines after Morgan Stanley analysts said last week that the company could breach a covenant regulating its credit facilities at the end of the year. To be in compliance with its loan terms, Vallourec’s net debt must not exceed its equity at the end of 2019. Banks agreed to loosen that ratio in 2017, according to its annual report.

Vallourec said in November that net debt rose by a third in the first nine months of the year to 2.1 billion euros, but that it expects to meet its debt covenants at the end of 2019 as continued growth in oil and gas activity and cost savings boost earnings. It added that it’s working on a plan to make its German operations more competitive.

To shore up its balance sheet during the rout in oil prices, Vallourec raised capital, shut or sold plants, shed thousands of jobs in Europe, streamlined operations in Brazil and bought a tube producer in China to compete in Asian markets.

“We’re following step by step with the company’s management
the implementation of the plan and the return to cash flow
break-even,” said Nicolas Dufourcq, chief executive officer of French state-owned bank Bpifrance, which has a 15 percent stake in Vallourec. “Despite the fact that the market in the second half of 2018 was tougher than expected, the plan is being carried out.”

In addition to the credit facilities, Vallourec has 400 million euros of bonds due in August and a further 1.7 billion euros due by 2024, according to data compiled by Bloomberg.

“The company has plenty of room to repay the bond due to mature in August 2019 thanks to the undrawn revolver,” said Marc Pierron, a senior analyst at Spread Research in Lyon, France.

“Its longer-term bond repayments could prove problematic, however, should financial performance not improve and if banks are not willing to refinance the credit facility.”

To contact the reporters on this story:
Luca Casiraghi in London at lcasiraghi@bloomberg.net
Laura Benitez in London at lbenitez1@bloomberg.net
Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editors responsible for this story:
Vivianne Rodrigues at vrodrigues3@bloomberg.net
Abigail Moses, Chris Vellacott

(BN) Here’s What to Watch in European High-Yield Bonds This Week (January 2019)

Here’s What to Watch in European High-Yield Bonds This Week
2019-01-28 11:20:33.634 GMT

By Marianna Aragao
(Bloomberg) -- A relatively small floating-rate note sale from Parts Europe SA, formerly Autodis, could reopen the issuance window in Europe’s primary market after the slowest January for junk bond sales since 2016.

The France-based auto parts distributor plans to sell 175 million euros ($200 million) of senior secured bonds due in May 2022, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Proceeds will refinance a drawn revolving credit facility and partly redeem the company’s existing floating rate notes.

While modest in size and with a structure that may appeal to loan investors, the single-B offering could provide a litmus test for a wary market that last year saw returns swing into the red and at least 18 deals being pulled or postponed.

Only Telecom Italia SpA has priced speculative-grade notes so far this month and bankers say the current pipeline is looking thin. The upcoming earnings season may also hamper near-term issuance prospects. SMCP SA and Tendam Brands SAU, formerly Cortefiel, are among issuers reporting results or sale updates this week.

“The pipeline of new deals seems pretty weak,” analysts at Spread Research said in a client note on Monday. “We still see a much more challenging year for corporates and less incentive to call existing bonds.”

On the macro front, credit investors will be braced for an eventful week that includes trade talks in the U.S. and the Federal Reserve’s rates decision on Wednesday. Closer to home, U.K. lawmakers will again be voting on Brexit on Tuesday.

See Also: What to Watch in European Credit Markets This Week

Europe Inflows

High-yield funds with a European focus saw inflows of $360 million in the week to Jan. 23, BofAML analysts wrote in a client note on Friday, citing EFPR data. The region received the lion’s share of the inflows to the asset class globally last week.

* Global high-yield funds recorded an outflow of $14m, while U.S. focused funds recorded inflows of $230 million, the BofAML analysts said

* High-yield funds denominated in euro saw their first inflow in nearly three months, with $0.4 billion in inflows, Wells Fargo analysts wrote in a client note, also citing EPFR Global data for week to Jan. 23

* In the U.S., corporate high-yield fund inflows swung back to outflows with $264 pulled for the week ended Jan. 23, according to Lipper Fund Flows data

To contact the reporters on this story:
Marianna Aragao in London at mduartedeara@bloomberg.net

To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
Charles Daly

By Yoruk Bahceli
LONDON, Jan 22 (IFR) - French cleaning and facilities management company Atalian's bonds plummeted on Tuesday morning on its announcement of an investigation into its principal shareholder.

Its leading shareholder, Franck Julien, has been placed under formal investigation by French authorities for misuse of corporate assets in connection with the payment by Atalian of invoices related to work at a Brussels building owned by the shareholder, the company said in a statement. Two employees of the company are also under investigation.

Atalian and its officers are not the subject of proceedings, it added.

Its €625m 4% 2024 senior note lost over seven points on Monday's close, sinking to around 68 bid earlier on Tuesday morning, but has recovered some of the losses, now trading around 71, according to Tradeweb data.

When Atalian last came to the bond market in April 2018, it referred to the matter as a risk factor, stating that an investigation into its relationship with a subcontractor had led to the identification of deficiencies in its internal controls, which could expose it or its shareholder to liability.

The risk was reiterated in its Q3 results in November, when the company announced Julien was scheduled to appear before the authorities.

"In our view, downside from the probe is largely reputational for now, particularly for the shareholder," analysts at Lucror Analytics said in a note.

The analysts said they would become more concerned if Atalian itself were subject to a formal investigation.

Benjamin Sabahi, head of credit search at Spread Research, said he expects little impact on Atalian, as the group has taken the right measures to deal with the investigation so far, conducting an internal investigation into the invoices and cooperating with the authorities.

But the potential of a weakening of the group's relationship with Julien raises questions about future financial support for the highly levered company, according to Sabahi.

Atalian's bonds have already been in trouble since last year, as leverage crept up thanks to its acquisition of British peer Servest and weaker-than-expected earnings. S&P downgraded the company one notch to B in November, while Moody's has its B2 rating on a negative outlook.

The company said in December it could bring another shareholder into its capital structure, according to analysts, with support from the main shareholder.

"Management recently somewhat dashed investors' hopes of a rights issue and we believe that this has to be connected to the current investigation concerning its controlling shareholder," Sabahi said.

The other option is for it to sell its stake in Getronics, an information and communications technologies company, according to analysts.

(BN) Here’s What to Watch in European High-Yield Bonds This Week (January 2019)

Here’s What to Watch in European High-Yield Bonds This Week
2019-01-21 11:36:42.861 GMT

By Marianna Aragao
(Bloomberg) -- Investors are turning to Europe’s high-yield secondary market as primary activity is struggling to gain traction this month.

The Markit iTraxx Crossover index extended tightening into a fourth week on Monday following a sell-off in December that took spreads to the highest level in more than two years. Some adjustment is probably taking place as there’s a sense the move in spreads last month was overdone, analysts said.

High-yield funds with an European focus saw their first inflow in fifteen weeks, according to Bank of America Merrill Lynch, although the size is relatively small.

Bankers are assessing whether the improved tone in the secondary market is good enough for the launch of new deals. Spread Research, in a note, said the pipeline of leveraged buyouts is thin, adding that borrowers are prevented from seeking cheaper refinancing as secondary prices are still below those of October.

While a handful of deals are being explored, it looks increasingly likely that they may be pushed to the latter part of the quarter, bankers said. In the sterling market, at least two borrowers have mandated banks for issuance but a timeline for the transactions is not clear as higher funding costs remain a sticking point.

So far this month, only Telecom Italia has tapped the market, raising 1.25 billion euros ($1.4 billion), according to Bloomberg data. This compares to 4.2 billion euros from seven borrowers in the same period of 2018.

Italy’s largest phone company paid a hefty premium for being the first in the market and the fact that it issued a profit warning barely days after that may cloud the picture for others. The company’s bonds declined across the board on Friday after it revealed a slowdown.

This week, investors will be watching out for other trading updates, including from gaming group William Hill this morning and Eurotunnel operator Getlink on Tuesday. U.K. Prime Minister Theresa May’s next steps on Brexit later on Monday and the European Central Bank’s policy decision on Thursday will also be on buyers’ focus in the coming days.

See Also: What to Watch in European Credit Markets This Week

Modest Inflow

High-yield funds with a European focus saw inflows of $69 million in the week to Jan. 16, the first inflow in fifteen weeks, BofAML analysts wrote in a client note on Friday, citing EFPR data.

* Global high-yield funds and U.S. focused funds recorded outflows of $190 million and $56 million, respectively, the BofAML analysts said

* Europe High Yield Funds were posting their 15th consecutive weekly outflow in the week ended Jan. 16, according to EPRF

* In the U.S., corporate high-yield fund inflows more than tripled to $3.3 billion for the week ended Jan. 16, according to Lipper Fund Flows data

--With assistance from Laura Benitez.

To contact the reporters on this story:
Marianna Aragao in London at mduartedeara@bloomberg.net

To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
V. Ramakrishnan

By Laura Benitez
(Bloomberg) -- Adient’s underweight recommendation was reiterated as the company may not have reached a floor in light of concerns around the group’s ability to recover its margins as well as its upcoming refinancing plans, Remi Ramadou, a credit analyst at Spread Research wrote in a client note.

* The U.S. automotive seating supplier is in talks with its banks to refinance existing secured debt to gain financial flexibility

* The company’s EU1b 3.5% Aug. 2024 senior secured notes dropped almost 4 points after the group posted first-quarter results on Wednesday and announced its refinancing plans

* "In our view, these new talks with bankers mean that Adient is under increasing pressure, since the net leverage ratio will probably hit a new high," said Ramadou

* Adient recently amended its term loan’s credit agreement by increasing the maintenance net leverage ratio to 4.5x, from 3.5x previously: Spread Research

* Spread Research expects the company’s EBITDA to be around $990m in 2019

** The expected decline in operating earnings would lead to an increase in reported net leverage to around 3.0x as of end- September 2019, from 2.3x the previous year, according to forecasts

To contact the reporters on this story:
Laura Benitez in London at lbenitez1@bloomberg.net

To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
V. Ramakrishnan

(BN) Euro High-Yield Bounce Back in 2019 Not a Consensus Forecast (January 2019)

Euro High-Yield Bounce Back in 2019 Not a Consensus Forecast
2019-01-15 11:17:50.870 GMT

By Marianna Aragao
(Bloomberg) -- Credit strategists are split in their forecasts for returns in Europe’s high-yield bond market after the worst year for the asset class in a decade.

A compilation of expectations from sell-side analysts shows forecasts range between minus 0.9 percent and 3 percent. This compares with a loss of 3.6 percent in 2018. In the U.S., most forecasters expect returns to rebound in 2019.

Most of the corporates in euro high-yield bond market currently have “fairly decent credit quality”, Citigroup strategist Hans Lorenzen wrote in a note dated Jan. 2. They have been less affected by the releveraging or deterioration in covenants seen in the investment-grade and leveraged loan markets, he said.

See also: European Junk Bonds Will Lead Recovery for Risk Assets: Barings

But Morgan Stanley analysts, in an outlook note in November, wrote the bear market in European credit has further to run, forecasting a loss of 0.9 percent. Technical and fundamental pressures are building in 2019, with “end-of-cycle concerns prompting increased scrutiny of balance sheet quality and refinancing needs,” said the note.

To contact the reporters on this story:
Marianna Aragao in London at mduartedeara@bloomberg.net

To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
V. Ramakrishnan

By Laura Benitez
(Bloomberg) -- Algeco could refinance its EU190m floating rate notes at 101 after the group receives proceeds from the sale of Target Logistics, Remi Ramadouat, a credit analyst at Spread Research wrote in a client note.

* Algeco will receive ~EU365m from the sale in 1Q19 after the repayment of some credit lines, the note said

* The EU190m FRN notes are trading around 99.5, which leaves a little upside in case of a refinancing at 101

* Reiterates its “Underweight” recommendation for other bonds of the company due to the group’s high net leverage, exposure to cyclical industries and potential acquisitions funded with cash

* The price of its fixed notes through a make-whole is too high and could discourage management from repaying these notes for now

* “We do not rule out that Algeco may trigger its call option to redeem annually 10% of its fixed-rate secured notes at 103 starting from February 2019”

* Algeco sold a ~EU1.4b equiv. bond in January last year to refinance all its existing debt stack, and then tapped its fixed and floating-rate 2023 notes in November for refi purposes

* During the group’s last conference call, management reiterated its intention to IPO over the medium term

* “In our view, we believe that such a move will not take place before all bonds become callable, i.e. February 2020, since it will be costly to redeem all bonds through the make-whole provision": Spread Research

To contact the reporters on this story:
Laura Benitez in London at lbenitez1@bloomberg.net

To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
V. Ramakrishnan

By Laura Benitez
(Bloomberg) -- A debt restructuring could be looming sooner or later for Boparan, given the overly leveraged balance sheet and pension deficit, Anthony Giret, a senior credit analyst at Spread Research, wrote in a client note on Thursday.

* New asset sales will help reduce debt but the source has partly dried up and this is not likely to be meaningful enough

* Says concerned about deep operational issues and margin deterioration, in the context of challenging macro environment in the U.K.

* Boparan’s liquidity profile is theoretically adequate for the next two years after it extended its RCF last quarter to March 2021 from Jan. 2019, Giret said, who holds a negative credit view on the name

** However, this is conditional on a successful repayment of the 2019 bonds in due time

* Boparan also revised down its maintenance covenant on Nov.19 requiring a minimum EBITDA level to GBP75m from GBP100m -- like for like LTM EBITDA stands at GBP100m

* The company’s planned use of disposal proceeds to repay 2019 bonds has upset 2021 bondholders this year who want all bonds repaid pro rata, and may resort to legal action

** Nov. 20: Boparan Sets Repayment Schedule For GBP250m Bonds Due in July

* In spite of the positive impact on leverage from recent asset sales, pro-forma net leverage increased by 1.3x y/y to a very high 6.8x at the end of 1Q, or an even higher 9.1x on an adjusted basis (mostly due to the substantial pension deficit - GBP268m)

* Boparan said last month it was working with advisers Paul Hastings and Rothschild to review existing lending facilities

Press Release : Spread Research and EthiFinance take the high ground! (December 2018)

Press Release : Spread Research and EthiFinance take the high ground!
2018-12-05

Lyon, Paris, December 5th 2018 - Spread Research and EthiFinance are pleased to announce their sponsorship of the French gliding championships. Gliding is a sport that demands a combination of human intelligence and an appreciation of natural elements. It appeals to human virtues and develops knowledge of and a huge respect for the environment. Spread Research and EthiFinance have decided to support the growth of this sport given its reflection of the values evident in the integration of financial and extra financial analysis for the rating of companies.

« In addition, we are proud to have sponsored a young pilot full of promise. Xavier Michalon has already collected numerous titles such as first place at the 2018 PACA Regional, fifth place at the 43rd International of Issoudun, and 10th place at the 2018 French Junior Championships. Xavier is currently preparing for the Southern African Championships. We wish him every success », comments Julien Rérolle, president of Spread Research.

About Spread Research :

Established in 2004, Spread Research is an independent credit research provider and a credit rating agency. Since its tie-up in February 2017 with EthiFinance, the leading French provider of ESG analysis and manager of the Gaia index ®, the group also provides non-financial ratings and advice in order to assist investors and companies in the management of risks and opportunities related to sustainable development. Spread Research has been registered as a credit rating agency with the European Securities and Markets Authority (ESMA) since July 2013; it is registered as an ECAI (External Credit Assessment Institution) with the European Banking Authority (EBA) and with the European Insurance and Occupational Pensions Authority (EIOPA). Spread Research is a signatory of the PRI and co-founder of PREF-X, the FinTech service for the private bond market.
To learn more: www.spreadresearch.com

Casino Debt Swaps Rise to Record as French Protests Add Pressure
2018-12-11 09:30:27.345 GMT
By Katie Linsell
(Bloomberg) -- The cost of insuring debt of supermarket chain Casino Guichard-Perrachon SA rose to a record after weeks of civil unrest in France.
Credit-default swaps protecting Casino’s bonds for five years rose nine basis points to 619 basis points on Monday, signaling a 41 percent probability of default within that period, according to data from CMA. That’s the highest closing price since CMA began tracking the data in 2009, and the contracts were little changed on Tuesday.
The Yellow Vest or Gilets Jaunes protests, named for the high-visibility jackets worn by demonstrators, are adding to investor concerns about Casino’s ability to support its indebted parent Rallye SA. French stores have lost about 1 billion euros
($1.1 billion) in revenue since the beginning of the demonstrations last month, according to the French retail federation.
“Casino has definitely been impacted by the Gilets Jaunes, like other retailers,” said Christine Kam, an analyst at brokerage firm Octo Finances in Paris. “It also still has the extra problem of Rallye’s leverage which weighs on sentiment.”
Casino remains focused on executing its deleveraging plan and reducing its net debt in France by 1 billion euros this year, while continuing to invest in its operations, a spokesman for the retailer said in response to questions about the move.
The protests, started with a grass-roots movement against fuel tax hikes, led the government to postpone planned legislation that would have forced retailers to increase prices.
That will be negative for Casino and rival Carrefour SA, according to analysts at Kepler Cheuvreux, who have a hold recommendation on both companies.
Credit-default swaps on Carrefour rose 8.5 basis points on Monday to 116 basis points, the highest since 2013, CMA data show. Contracts on another retailer, Auchan, rose nine basis points on Monday to a record 234 basis points, CMA data show.
Both were little changed on Tuesday.
Officials at Carrefour and Auchan declined to comment on the moves.
A wider gauge of high-yield risk sentiment rose to the highest level since July 2016 on Monday. The Markit iTraxx Europe Crossover Index fell seven basis points on Tuesday to
349.5 basis points, according to CMA.
“Longer-term concerns are still there due to continued high leverage and weak cash generation,” Anthony Giret, an analyst at Spread Research in Lyon, said of Casino. “In a bearish market for risky assets such as the one we’ve had since October, Casino and Rallye are likely to underperform.”
To contact the reporter on this story:
Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses
Back to list

Riskiest Junk Bonds Make Surprise Appearance in New Issue Market
By Laura Benitez
(Bloomberg) -- Investor appetite for risky new deals is
about to be tested even as Europe’s high-yield market is
smarting from one of the biggest selloffs since 2016.
Stada Arzneimittel AG and Cognita Schools Ltd are this week
marketing bonds rated CCC to help finance their respective
buyouts. The low-rated deals will be the first real test of
demand for triple C paper since Akzo Nobel Specialty Chemicals
sold 485 million euros ($547 million) of Caa1 notes in
September.
"A combination of seasonally declining liquidity, a poor
technical backdrop, and increasing fundamental concerns are
making access to primary markets challenging for lower quality
credits," said Fraser Lundie, co-head of credit at Hermes Fund
Managers Ltd in London, which manages 36 billion pounds ($46
billion) of assets. “There’s a lot of pain for lower quality
credit, particularly those in the triple C range.”
In the wake of the recent sell off, which has seen yields
of European sub-investment-grade debt climb to their highest
level for more than two years, and with year-end rapidly
approaching, investors are positioned cautiously to preserve
returns or minimize losses. But borrowers with a need to fund
buyouts may not be able to wait for the optimal spot to issue
debt. And that’s the case for both these deals.
Cognita’s proposed 255.3 million-euro offering will support
its acquisition by Jacobs Holding AG. Stada’s planned 250
million-euro sale will help pay out minority shareholders in the
German drugmaker, which include activist hedge fund Elliott
Management Corp.
Stada’s Debt Sale for Delisting Set to Swell Leverage Ratio
Risk Off
Triple C issuance by non-financial corporates in Europe has
shrunk to 2.1 billion euros-equivalent so far this year,
compared with 5.7 billion euros in 2017, according to data
compiled by Bloomberg. And most of this year’s triple C-rated
supply has emanated from sponsor backed deals for buyouts where
leverage multiples have typically been higher.
The significant repricing the market has undergone in
recent weeks means pricing expectations among investors for new
issues are likely to have increased.
Remi Ramadou, a credit analyst at Spread Research said in a
note published on Thursday that he does not recommend buying
Stada’s new unsecured bonds below 7.5 percent, which represents
a premium of 50 basis points over the existing unsecured notes.
Given that secured notes are currently trading at a yield-
to-worst of about 4.4 percent for a net secured leverage of 5.1
times, bonds paying about 7.5 percent would offer a fair premium
of 300 basis points for one turn of leverage, in spite of the
uncertainties amid the deleveraging prospects, Ramadou said.
Both Cognita and Stada are selling bonds as part of bigger
financing packages that include leveraged loans. Those loans
haven’t experienced a smooth ride among investors.
Playing in their favor could be that they are sponsor-
backed credits rather than corporate deals, where many of the
recent blow ups have occurred. Even though leverage may be
higher, investors have taken comfort in the perceived due
diligence process conducted by private equity firms during
leveraged buyouts.
To contact the reporter on this story:
Laura Benitez in London at lbenitez1@bloomberg.net
To contact the editors responsible for this story:
Sarah Husband at shusband@bloomberg.net
Charles Daly, Tom Freke
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(Refinitiv) European HY sees second largest outflow – Spread Research

27 November 2018 By Yoruk Bahceli
The European high-yield market saw outflows surge to €1.4bn last week, the second largest level recorded by Spread Research data.
The credit research firm, which has tracked the data since 2010, said the scale of outflow was on par with that recorded during February’s correction.
Short-term high-yield funds lost €234m, bringing losses year-to-date to €3bn, while long-term funds saw €1.1bn exit, one of the largest outflows ever for that segment. This brings year-to-date outflows to €6.6bn for long-term funds.
Spread Research said some long-term funds are becoming forced sellers in order to meet redemptions, even with huge discounts on prices.
ETFs were not saved either, seeing outflows of €77m.
With last week’s losses, overall European high-yield funds have lost €9bn year-to-date, compared to €3.9bn in 2017.
Yoruk Bahceli can be joined : Yoruk.Bahceli@refinitiv.com
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(Refinitiv) Spread Research to launch governance risk score

Spread Research to launch governance risk score
By Yoruk Bahceli
Spread Research is launching methodology to score governance risk as part of its credit analysis as high-yield investors’ focus on governance issues grows.
The French ratings agency, which also provides independent credit research focused on sub-investment-grade companies to the buyside, announced on Thursday that it is launching the methodology in partnership with its environmental, social and governance division, EthiFinance.
The methodology will assign credits a governance score to be included in Spread’s credit view. The agency expects to be able to identify a potential spread impact from weak governance. The score will be based on 15 criteria of governance, which are grouped into five categories, Pierre-Yves Le Stradic, head of research at EthiFinance, told IFR.
The categories address shareholder behaviour, board considerations, leadership and auditors, as well as a fifth segment that looks at various other governance issues, including related party transactions.
Le Stradic said that much of current ESG research focuses on long-term concerns from the perspective of shareholders, while high-yield investors are concerned with whether or not the company will pay them back in a shorter timeframe.
He added that the 15 criteria were chosen in line with likelihood of occurence in a shorter rather than longer period of time and based on issues that pertain to creditors rather than shareholders.
European high-yield investors are also increasingly focusing on ESG issues and integrating these concerns into their credit analysis. That many high-yield issuers are non-listed and restrict access to their investor relations sites has been a particular challenge for those investors.
“The challenge that was upon us was to drive consistent information in a universe where most issuers are non-listed. We’ve been focusing on criteria where the availability of the information is quite high,” Le Stradic said.
Spread Research is launching its methodology at a time when the high-yield market is seeing more and more single-name sharp moves as bonds see big price drops on bad news thanks to tight coupons that do not leave room for error.
“It’s important to bear in mind that, in an expensive high-yield and credit market, asset managers simply can’t afford to have losses between 10 points for a marginal problem up to 80-90 in very stressed scenarios,” Spread’s head of research Benjamin Sabahi told IFR.
“This is an asymmetric market we are talking about, so if you have a weak score in terms of governance, you have to be punished by that as the spread impact can be sizeable.”
Sabahi added that investors need to be clear in differentiating between transparency and governance risks.
“Investors have a tendency to mix up problems. You could have a company that is very good in terms of transparency … but that company could still default on its debt,” he said, citing the infamous example of Abengoa.
Spread will integrate the new framework into its coverage by the first half of 2019 and hopes to include social and environmental factors into its analysis thereafter.
Yoruk Bahceli can be joined : Yoruk.Bahceli@refinitiv.com
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(BFW) Spread Research to Weigh Company Governance in Credit Analysis (October 2018)

Spread Research to Weigh Company Governance in Credit Analysis
2018-10-25 13:01:10.369 GMT
By Katie Linsell
(Bloomberg) -- Spread Research, an independent high-yield research firm based in Lyon, France, is adding a new methodology focused on borrowers’ corporate governance to enhance its analysis, according to a statement.
* Approach to consider 15 criteria relating to governance, including:
** shareholders
** board considerations
** executive leadership
* Co. will publish a governance score for each borrower out of 5 and will disclose how score should impact the bond spread
* Co. plans to rate ~200 companies in first half of next year
* Methodology developed with EthiFinance, division of Spread Research focused on environmental, social and governance standards
** Co. plans to add environmental and social factors to analysis in due course
To contact the reporter on this story:
Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses
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OHL Shares, Bonds Fall as First Half Losses Highlight Challenges
2018-09-27 10:54:57.808 GMT
By Macarena Munoz and Katie Linsell
* (Bloomberg) -- Shares and bonds of Obrascon Huarte Lain SA fell on doubts about the future direction of the Spanish builder’s business following the sale of its concessions unit.
OHL’s 270 million euros ($316 million) of notes due March
2023 slumped 10 cents on the euro to 85.5 cents, the biggest decline in about two years, according to data compiled by Bloomberg. The shares fell as much as 23 percent to 1.98 euros, their lowest level since August 2016.
* OHL completed the sale of its concessions unit in April to Australia’s IFM Investors, valuing the unit at 2.78 billion euros. Investors who were encouraged when the sale was announced in October as a move to reduce OHL’s debt load are still looking for more signs of improvement in the construction business that remains.
* “After the divestment, OHL is more of a pure construction company and the results of the remaining business so far haven’t been great,” said Marc Pierron, a senior credit analyst at Spread Research in Lyon. “They have a decent amount of work to do to turn around the construction business.”
* OHL last night reported six-month losses of 843.6 million euros compared to a 32.1 million-euro loss a year earlier. Most of the losses, 550.5 million euros, were due to an accounting adjustment as a result of the sale of its OHL Concesiones unit, the company said.
* “Even after all efforts done to clean the financial structure and restructure the company, the situation is still not on course,” Angel Perez, an analyst at Renta 4 Banco in Madrid, wrote in a note to clients.
To contact the reporters on this story:
Macarena Munoz in Madrid at mmunoz39@bloomberg.net; Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Beth Mellor at bmellor@bloomberg.net
Charles Penty, Andrew Blackman
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"Huge" Interest Savings for AkzoNobel Chemicals: Spread Research
2018-09-21 08:48:50.766 GMT
By Ruth McGavin
(Bloomberg) -- AkzoNobel Specialty Chemicals has locked in "huge" cash interest savings on its LBO financing by cutting pricing versus what was initially offered during syndication, and by increasing the amount of loans by 85% vs 79%, according to a report by Spread Research.
* Cash interest expenses will be ~EU340m, down 19% vs the EU420m it would have paid based on opening price talk across its loans and bonds: report
* This marginally improves projections for net adjusted leverage, report says, to 5.2x total at end of 2019 from 5.3x initially expected, 4.6x at end of 2020 vs 4.8x, and 4x at end of 2021 vs 4.4x
* Free cash flow seen at EU425m in 2020 and EU480m in 2021
* Spread Research notes a 100bps premium vs CCC+/B- rated bonds in more stable markets, and says the bond should perform well up to FY19, "before the re-leverage risk could materialize amid covenant-lite documentation"
* NOTE: Final terms for loans here and bonds here: Bloomberg
To contact the reporter on this story:
Ruth McGavin in London at rmcgavin1@bloomberg.net To contact the editors responsible for this story:
Tom Freke at tfreke@bloomberg.net
V. Ramakrishnan
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Hedge Funds Cut Shorts in Casino Bonds After Rallye Lifeline
2018-09-19 15:03:23.263 GMT
By Katie Linsell
* (Bloomberg) -- Short sellers in French supermarket chain Casino Guichard-Perrachon SA were burned this week when its indebted parent got a last-minute loan lifeline.
* Hedge funds have been scrambling to cut short positions on both companies’ bonds since Rallye SA announced on Sunday that it had signed a 500 million-euro ($585 million) credit facility.
Shorts on Casino fell by 63 million euros from a record 373 million euros last week, while those on Rallye fell by 23 million euros to 56 million euros, according to IHS Markit Ltd.
* The new loan, which doesn’t require a pledge of Casino shares as collateral, will help Rallye pay about 970 million euros of bonds due by the end of March. Casino’s plunging share price has threatened to limit Rallye’s access to existing credit lines because most require the stock as collateral.
* “It’s a big step for Rallye, which is already regaining the market’s confidence,” said Benjamin Sabahi, head of credit research at Spread Research in Lyon, France. “The loan must have caught a lot of investors by surprise. The bonds have recovered a great deal.”
* Casino’s most-shorted bond, its 744 million euros of notes due in June 2022, rose 2 cents on the euro this week to 92 cents, the highest in more than a month, according to data compiled by Bloomberg. Rallye’s 300 million euros of bonds due in March jumped 16 cents on the euro to 98 cents, the data show.
* Credit-default swaps protecting against losses on Casino’s bonds for five years fell 99 basis points this week to 414 basis points, while contracts insuring Rallye’s bonds dropped by the equivalent of more than 1,300 basis points to about 1,510 basis points, according to data from CMA.
Loan Terms
* “It will be necessary to ask Rallye to unveil the terms of the credit facility and if drawing on it is subject to any particular criteria,” Alain Lopez, an analyst at brokerage firm Octo Finances, wrote in a note to clients on Monday. “We find it hard to believe that Rallye’s banks have given it a gift.”
* The loan has no pledge over Casino’s shares, floor on Casino’s share price or other link to Casino, Franck Hattab, Rallye’s chief executive officer, said in response to questions about the facility. Hattab declined to comment further on the terms of the loan.
* “The group is pleased that investors are once again interested in the fundamentals of the company and in the success of its recent initiatives,” a Rallye spokesman said separately, referencing a recently-announced partnership between Casino’s Monoprix chain and Amazon.com Inc.
* A spokesman for Casino said the performance of the company is in line with guidance. “We are looking for this to be reflected in further improvement in the share price,” he said.
Share Surge
* Casino’s stock has surged 43 percent from a 22-year low on Sept. 3. It was trading at 37.9 euros a share at 4:50 p.m. in Paris on Wednesday, the highest level since May, data compiled by Bloomberg show.
* Still, bearish investors are holding onto their downward bets, with short interest little changed from a record 18.9 percent of Casino’s outstanding shares on Friday, according to IHS Markit’s data.
* Casino has been in a battle with short sellers including Carson Block, whose Muddy Waters fund disclosed a bet against its stock in late 2015. He’s taken aim at the retailer’s complicated financing amid brutal competition in France and sent the shares tumbling with a tweet last month that said Casino hadn’t published accounts as required for one of its subsidiaries.
--With assistance from Thomas Beardsworth, Lisa Pham and Neil Denslow.
To contact the reporter on this story:
Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses
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Casino Share Price Nears Danger Zone for Rallye’s Debt Due 2019
2018-09-03 14:54:48.112 GMT
By Katie Linsell
* (Bloomberg) -- The latest plunge in French grocer Casino Guichard-Perrachon SA is pushing its indebted parent Rallye SA into a precarious position, according to analysts.
* Rallye must pledge Casino shares as collateral to draw down most of its credit lines and, with the stock price below 27 euros ($31), it will run out of collateral by the time it needs to refinance debt next year, said Anthony Giret, an analyst at Spread Research in Lyon, France. Bank of America Corp. analyst Tanya Kovacheva calculates a lower threshold of 26.4 euros, according to a note she wrote to clients last month.
* Casino’s shares were trading near a 22-year low at 26.5 euros at 4:50 p.m. in Paris.
* “If Rallye pledged all its Casino shares to draw on credit lines today, they would barely cover the 2019 debt maturities at the current share price,” said Giret. “There is hardly any more room. It’s really on the edge.”
* Most of Rallye’s facilities require it to pledge Casino stock worth 130 percent of the amount drawn. The current price means that Rallye won’t have enough Casino shares left next year if it uses credit lines to repay this year’s debt maturities, the analysts said. Casino’s Chief Executive Officer Jean-Charles Naouri controls the grocer through Rallye.
* “The speculation over the Casino share price and its relation to Rallye’s ability to meet its bond commitments is being driven by a few investors,” said Franck Hattab, Rallye’s chief executive officer. “We can reassure the investors who support Rallye and Casino, and who are confident that the share price will be built back, that the share price threshold being guessed at is a long way from reality. We are well aware of our debit commitments and we are working with all our partners to achieve long-term growth for the business.”
* Rallye has 300 million euros of bonds coming due next month, when it also must repay exchangeable bondholders 370 million euros. It has 300 million euros of bonds maturing in March and 50 million euros of loans due next year, according to the company’s first-half earnings. The company also had 302 million euros of commercial paper outstanding in July, according to the latest data from the French central bank.
* Out of 1.7 billion euros of undrawn credit lines, 1.4 billion euros require share pledges as collateral, according to Rallye’s results as of June 30.
To contact the reporter on this story:
Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses
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Lowell Considers Funding Alternatives to Junk-Bond Market
2018-08-30 09:23:25.884 GMT
By Thomas Beardsworth
* (Bloomberg) -- Europe’s most leveraged debt collector is considering alternative funding options amid concerns it may be locked out of the high-yield bond market.
* Lowell is discussing the possibility of issuing debt secured by its portfolios of defaulted consumer loans, Chief Financial Officer Colin Storrar said in an interview on Wednesday after reporting second-quarter earnings. The Leeds, England-based company has sufficient cash and available credit from its revolving loan -- as well as other financing options -- and management doesn’t “anticipate coming back to the high-yield market anytime soon,” he said.
* While some bondholders are opposed to Lowell issuing asset- backed securities because it would subordinate their claims, they appreciate the need for the company to find cheap financing to support growth, Storrar said. Morgan Stanley said in June that Lowell had “very little possibility” of selling junk bonds after investors pushed back on an offering by rival Intrum AB.
* Lowell, which owes banks and investors about $3 billion, last issued bonds in January to finance its acquisition of Intrum’s Nordic assets. It pays 3.5 percent over benchmark rates for a bank-lending facility it more than doubled in May, about half the indicative cost of raising money in the bond market after a selloff in its publicly-traded debt this year.
* Asset-backed debt “comes with a lower coupon and free cash flow,” Storrar said. “But I’m mindful of the hesitation of bondholders, not least with regard to the security position. I took time this morning to understand and respond to those concerns,” he said, referring to an investor call on which he said there were more than 100 analysts.
* Lowell’s outstanding bonds, which yield about 7 percent, would still be fair value if the company raised 200 million pounds of asset-backed securities, said Benjamin Sabahi, head of credit research at Spread Research, who recommends buying the notes.
* Storrar declined to comment on whether Lowell will exercise an option in November to redeem 230 million pounds ($299
million) of 11 percent junior bonds, its most expensive debt, at
108.25 percent of face value. Investors shouldn’t assume that Lowell will use future financing to buy back bonds rather than grow its business, he said.
* Separately, competitor Arrow Global Group Plc’s chief executive officer said in an interview on Thursday that the company doesn’t need to raise money in bond markets until 2024.
To contact the reporter on this story:
Thomas Beardsworth in London at tbeardsworth@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses, Shannon D. Harrington
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(BN) BNP Paribas Is Said to Offer Bet on Timing of Rallye Default (August 2018)

BNP Paribas Is Said to Offer Bet on Timing of Rallye Default
2018-08-29 12:05:26.182 GMT
By Katie Linsell and Thomas Beardsworth
* (Bloomberg) -- BNP Paribas SA traders started pitching derivatives trades that allow investors to lock in prices now on future bets that Rallye SA could default when it needs to refinance debt, according to people familiar with the matter.
* The bank is circulating prices for so-called forward credit-default swaps on the indebted parent of French supermarket chain Casino Guichard-Perrachon SA, said the people, who asked not to be identified because the information is private. The trades insure Rallye’s bonds starting at specific dates in the future and may appeal to investors who believe the company has enough cash to avoid an imminent default.
* Rallye is under pressure to repay at least 970 million euros ($1.1 billion) of debt by the end of March and a further
230 million euros of bank loans in 2020. Investors are concerned it may be unable to cover debt maturities because most of its credit lines require it to pledge Casino shares, which fell to a 22-year low this month.
* “Given Rallye’s current liquidity, debt maturity profile and Casino share price, there should be no problem in 2019 but the question is: will it be sustainable the following year?”
said Anthony Giret, a credit analyst at Spread Research in Lyon, France. “The problem could happen in 2020 when Rallye has bank loans to refinance, so this kind of instrument makes sense.”
Credit Lines
* A spokesman for BNP Paribas in London declined to comment on the trades. Rallye’s Chief Executive Officer Franck Hattab said he’s “confident” in the company’s ability to refinance or extend bank loans and credit lines.
* “We cannot comment on bank products, but Rallye has a strong liquidity position with more than 1.7 billion euros of confirmed and undrawn credit lines,” he said in response to questions about forward trades. “The average maturity of these lines is 3.6 years and, to maintain this liquidity, Rallye pays commitment fees on all the lines so that the 1.7 billion euros is fully committed.”
* Hattab said in June that the company will cover debt maturities until at least the end of 2019 using existing credit lines and issuing new bonds. He said he didn’t foresee any difficulty accessing credit lines that require pledging Casino shares to draw down. Out of the 1.7 billion euros of undrawn credit lines, 1.4 billion euros require pledges as collateral, according to Rallye’s first half results.
* Rallye’s ability to refinance its debts was brought into focus in June, after Barclays Plc analysts said Casino had “significantly negative” free cash flow and its parent may struggle to meet maturities. Goldman Sachs Group Inc. also released research at the time advising clients to sell Rallye bonds and buy five-year credit-default swaps.
* Swaps on Rallye now imply a 27 percent chance of default within one year and a 76 percent probability within five years, CMA data show.
Forwards might appeal to investors who only want insurance for a specific period of time. They’re usually structured by offsetting two swaps of different maturities, meaning protection kicks in after the shorter leg expires, according to Ulf Erlandsson, a portfolio manager at startup hedge fund Glacier Impact in Stockholm, which hasn’t done the trade on Rallye.
* “The view might be that the company has cash lasting until a certain date, so default protection up until that date is not that valuable,” he said. “At some point -- for example a bond maturity/redemption -- you might have a liquidity crunch and a lot of people want to own protection for that point in time.”
Swaps also cost less the further in the future they start.
* The upfront payment for one-year protection starting in two years drops to 10 percent, or 1 million euros on 10 million euros of debt, from 13.5 percent beginning now, according to BNP Paribas prices sent last week.
* “It saves you some costs if you have the conviction that you only need to be protected from year two onwards,” said Ulrich Von Altenstadt, the Munich-based managing director at XAIA Investment GmbH, which also hasn’t bought forwards on Rallye.
To contact the reporters on this story:
Katie Linsell in London at klinsell@bloomberg.net; Thomas Beardsworth in London at tbeardsworth@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net Abigail Moses
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Altice Europe Markets Bonds After Raising $2.5 Billion in Loans
2018-07-16 13:30:44.999 GMT
By Katie Linsell
(Bloomberg) -- Altice Europe NV is seeking to raise about
$2 billion in the bond market after obtaining $2.5 billion in new eight-year loans in a plan to get billionaire Patrick Drahi a step closer to tackling a debt load that has spooked investors.
The Amsterdam-based company plans to sell $1.25 billion of bonds denominated in dollars and 650 million euros ($761
million) of bonds in the single currency, according to a person familiar with the matter, who asked not to be identified because the information is private. As the latest in a string of moves to shore up its finances, the loan refinancing strengthens Altice Europe’s liquidity profile, it said in a statement Monday before news of the bond sale had emerged.
Investors dumped Altice stock last year over concerns that it couldn’t maintain its debt, which stood at about 32 billion euros at the end of the first quarter. The company has put the brakes on acquisitions, spun off its U.S. unit and is pursuing asset sales. It said last month it will raise 2.5 billion euros in cash by selling stakes in transmission towers in France and Portugal.
“Altice Europe is back for the first time in the bond market since October and will be testing investor confidence since the big selloff of last year,” said Jean-Rene Meduri, an analyst at Spread Research in Lyon. “The term loan new issue that went smoothly last week paved the way for further refinancing.”
Altice Europe shares fell 0.4 percent to 3.15 euros at 3:29 p.m. in Amsterdam.
Maturity Wall
Altice Europe plans to use the new loan proceeds to pay back a portion of its French unit’s $4 billion in senior secured notes due May 2022, according to the statement. The proceeds from the bond sales will also be used to redeem a portion of notes due in 2022, people familiar with the matter said on Monday.
The company is facing a wall of maturities, with more than
8 billion euros of debt due in that year alone, its latest earnings presentation shows. Between now and then it has more than 2 billion euros of debt due for repayment, the filing shows.
The phone and cable company initially sought to raise $2 billion from investors in the new loans, according to people familiar with the matter last week. After increasing the margin on the loans it was able to boost the size to $2.5 billion, said the people, who asked not to be identified because the matter is private.
To contact the reporter on this story:
Katie Linsell in London at klinsell@bloomberg.net To contact the editors responsible for this story:
Shelley Robinson at ssmith118@bloomberg.net; Rebecca Penty at rpenty@bloomberg.net Kim Robert McLaughlin
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